Key Takeaways

Earnings this week include some of the big tech companies, starting with Alphabet later today

Tariffs haven’t yet been a big focus on earnings calls, but don’t rule it out

Earnings season is off to a solid start so far with nearly 20% of S&P companies done reporting [Earnings season is off to a solid start so far with nearly 20% of S&P companies done reporting]

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(Monday Market Open) Tech earnings season starts in earnest this week, but there’s a lot more on the plate. Key data, including the first look at Q2 gross domestic product, might compete with earnings for investor attention in the coming days.

It’s the start of a very big week for the market, with lots of “crowd favorites” due among the 174 S&P 500 companies scheduled to report. We’re not just talking about the Alphabets (GOOG), Facebooks (FB) and Amazons (AMZN) of the world, but also widely-held companies that sometimes get less attention like AT&T (T) and also some “old school” companies like McDonald’s (MCD) and Coca Cola (KO).

Earnings Extravaganza On Tap

Tech earnings seem likely to draw the most headlines this week, but there’s no one issue that really unites three of the biggest tech companies on the calendar. For GOOG, investors might come into this afternoon’s report with concerns about a bigger than $5 billion fine GOOG just received from the European Union for antitrust violations. No matter how big a company you are, that’s a lot of money.

FB goes into its earnings later this week with the options market showing the possibility for a big move one way or another, so investors might want to approach that stock with care. Meanwhile, the focus at AMZN seems likely to be on its cloud business after Microsoft (MSFT) delivered another big beat in that segment. MSFT’s cloud business has been strong, but Amazon Web Services has been kind of the gorilla in the room, so we’ll see if they can continue the kind of growth they’ve been having.

The major automakers are also up to bat this week, but neither Ford (F) nor General Motors (GM) come into earnings season with a lot of sparkle in their respective stocks. The auto sector came under pressure lately due in part to worries about tariffs. The administration said last week it plans on talks with Europe’s trade reps this week, so maybe some news could surface. Keep an eye out for any headlines from those talks.

When the “old school” companies like MCD and KO report, it might be instructive to watch their overseas sales to see if they’re continuing to make strides with consumers outside of the traditional American market. KO, for instance, has done a good job adjusting to healthier American tastes by focusing more on bottled water, but it still has a great audience overseas for sweet drinks, and if consumers there seem to be buying lots of pop, it could loosen up some of the tariff worries.

So far this earnings season, there really hasn’t been much talk about tariffs (more below), and that could be seen as a good thing. General Electric (GE) and Honeywell (HON) didn’t dwell a lot on the issue during their calls Friday, and those are both multinational companies that could potentially be affected by trade policy. So it’s sometimes what companies don’t say rather than what they do that helps tell the story.

One interesting note on tariffs came when aluminum maker Alcoa (AA) said last week that U.S. tariffs created to help domestic steel and aluminum makers actually created a headwind for the company by raising costs. AA makes some of its aluminum in Canada for import to the U.S., and that product now faces U.S. tariffs.

Grading Earnings: Up to B+/A-

From 30,000 feet up, earnings season so far might deserve a B+ or A- grade. By the end of this week, we’ll be nearly 50% of the way through and probably have a much better finger on the corporate pulse.

As of Friday, 17% of the companies in the S&P 500 had reported results, with 87% of those beating Wall Street analysts’ EPS expectations and 77% beating sales expectations, FactSet reported. Both of those percentages are above the five-year average. Year-over-year earnings growth for companies reporting so far averages 20.8%, FactSet said.

Looking back at last week’s sector scorecard, financials led the way with a gain of 2.22%, followed by industrials and info tech. Transports also revived a bit from recent weakness, while telecom and energy rounded out the bottom of the performance list. Though some of the more traditionally aggressive sectors like info tech and financials have done well lately, utilities and staples lead all sectors over the last month, a sign that maybe some investors continue to take a defensive stance.

Speaking of defense, the 10-year Treasury yield climbed to just under 2.9% by the end of the day Friday, but now has closed in the 2.8% to 2.89% range for more than 20 sessions in a row and edged slightly lower early Monday ahead of scheduled Treasury bill auctions. Again, this relatively tight range well below the spring highs also speaks to possible cautiousness among many investors. Later this week, the government is expected to issue its first read on Q2 GDP, and Wall Street analysts expect better than 4% growth, according to Briefing.com. We’ll have to watch that data and how it might impact yields.

From a big-picture perspective, the major U.S. indices barely moved last week, all climbing or falling about 0.1%. Stocks in Europe fell early Monday as investors there await a European Central Bank (ECB) meeting later this week.

In U.S. markets ahead of the opening bell Monday, shares of Hasbro (HAS) jumped after the company beat Wall Street analysts’ expectations on earnings and revenue. The strong performance came as a bit of a surprise, but the company appeared to get a boost from its acquisition of the Power Rangers brand.

Also, there were a couple of analyst downgrades early Monday affecting stocks. Walgreen’s Boots Alliance (WBA) and Papa John’s (PZZA) both got downgraded. Shares of PZZA also seemed to be hit with pressure from news over the weekend that the company had adopted a so-called “poison pill” to limit its founder’s stake.

Crude oil futures might come into more focus today. They’re up about 1% early on as tensions appeared to rise between the U.S. and Iran. There’s a lot of hyperbole, so keep an eye on VIX to see if volatility gets affected. VIX rose nearly 3% to just above 13 in the early going.

FIGURE 1: Barometer Check: Both the Dow Jones Transports (candlestick) and copper (purple line) are two areas many investors monitor as potential barometers of the broader economy. Over the last month, as this chart shows, they’re sending different signals. Data Sources: CME Group, S&P Dow Jones Indices.Chart Source: The thinkorswim platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Fed President Urges Red Light on Rates: St. Louis Fed President James Bullard said Friday that the Fed should consider holding off further rate increases to avoid the risk of a so-called “inverted” yield curve. An inverted yield curve—when the near-term yields rise above long-term yields—has often been associated with past recessions, though correlation isn’t necessarily causation. Bullard, who doesn’t have a vote on rates this year, said in prepared remarks, “Imminent yield curve inversion in the U.S. has become a real possibility. Yield curve inversion is a naturally bearish signal for the economy. This deserves market and policymaker attention.” He warned that if the Fed hikes rates twice more this year,, that could lead to an inversion. However, Fed Chair Jerome Powell told Congress last week that the shape of the yield curve doesn’t drive the Fed’s rate decisions. Chances for two more increases this year are slightly above 53%, according to CME Group Fed funds futures.

Numbers Game: Major multinationals like MSFT, HON and GE—all of which reported strong earnings on Friday—might be benefitting from the strong U.S. economy. Recent economic numbers didn’t really do anything to challenge that theory. The exception was last Wednesday’s surprisingly weak housing starts and building permits, but other than that, everything’s looked pretty robust. Take leading indicators on Thursday, which rose 0.5% in June, above analysts’ 0.4% estimate. It was the largest increase since February, though Briefing.com did point out that first-half leading indicators growth of 2.5% lagged the 3.2% growth in the second half of 2017.

Existing home sales this week might get a closer look after the slump in new home sales data, however. Also, consider keeping an eye on Wednesday’s oil and gasoline stockpiles report from the U.S. government. Last week’s data showed a surprise uptick in oil supplies, but gas supplies saw a drawdown and that might reflect strong U.S. energy demand.

Watch Chipmakers for Tariff Clues: So far this earnings season, a lot of technology companies have reported and few have mentioned tariffs on their earnings calls. The industrial firms that reported to date also didn’t have much to say about possible trade wars, though a couple of the big banks did voice caution. Within tech, chipmakers are one segment that’s probably more exposed to danger from tariffs, so things could get interesting when these companies step into the limelight. Intel (INTC) reports after the close Thursday, so that could be one to watch. If the second half of earnings season features companies starting to voice worries about tariffs, that could change what’s been a mostly positive tone so far.

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